Is my insurance going to pay claim?

How does the insurance company decide on whether or not to pay?

A common insurance question is, "will this be paid?" when a claim has occurred. Let's take a quick look at the way a claim is handled to start to answer that question.

A good example is a case that just went through the courts with The Personal Insurance denying payment. The legal defense and payment refusal were based on how the wording of an exclusion in the policy was interpreted.

In this case Derek John McGrimmon and Jennifer Lea Sholea maintained the Personal had an obligation to defend them when they were accused of negligence in the April 30 2010 sale of their home. Legal defense is a big part of your insurance coverage as the costs to hire lawyers and go into the courtroom can run into hundreds of thousands of dollars. Also, the policy responding to the claim also means that if you are found to be negligent then the insurance company pays out.

The defendants were seeking this legal counsel to help them when brought into court by Anna Poplawski and Geoffrey Hutchinson. Poplawski and Hutchinson are the plaintiffs who stated that McGrimmon and Sholea misrepresented the state of their home in an Agreement of Purchase and Sale. After the Poplawski and Hutchinson moved into the home, they discovered faulty design and poor construction of the property.

The claim was settled but not the portion against McGrimmon and Sholea, to whom The Personal said it did not owe a duty to defend. This would leave them having to pay out of their own pockets for lawyers and being in a weaker position because of this refusal.

The insurance company argued that the allegations were for a breach of a "contractual duty of care," which is excluded from insurance coverage because a breach of contract does not represent a "fortuitous contingent risk" or loss.

The court then outlined a long line of case law suggesting that breaches of contract are in fact covered under liability in insurance policies, unless there is a specific exclusion written into the policy.

Long story, short - the Ontario Court of Appeal has ordered The Personal Insurance Company to defend these two homeowners accused of negligently representing the condition of their home in a sale to others, because the exclusion meant to cover ‘breach of contract' was written in the present - not the past - tense.

The actual wording is as follows: "You are not insured for claims made against you arising from damage to property you own, use, occupy or lease."

The courts ruled that since McGrimmon and Sholea no longer owned the home, the exclusion did not apply. The insurance company has a duty to defend McGrimmon and Sholea.

The decision was based in part by a comparison to other company's wordings. Federation Insurance took into consideration that the home may have been sold. Their wording says, for damage to "property you own, rent or occupy; premises you sell, give away or abandon."

Read the wordings carefully on your policy. Take control of your insurance. In a claim be sure to examine all the possibilities if your claim is denied. The case above was finally paid under the Ontario Court of Appeals determination.